When is Factoring the Right Fit for Your Business?
by Curtis Sutherland, VP Accounts Receivable
As a small-business owner, you have a variety of lending options available to your company, should you choose to pursue them. From large, lump-sum loans to revolving lines of credit and everything in between, you can seek additional funding in many different ways. Determining which financial product is the best fit for your needs is a crucial decision that can impact your operations for years to come. Let’s look at invoice factoring and the situations in which in can help your organization prosper.
When does invoice factoring make sense for businesses?
Invoice factoring is a versatile and sustainable method of gaining access to a powerful line of credit for your business. You simply pass along unpaid invoices to the financial institution you partner with, which then provides a line of credit your company can use immediately. This approach offers an efficient alternative to the months-long waits you might otherwise encounter as your clients follow industry norms and wait as long as 90 days to pay their invoices. You can replenish the line of credit with additional invoices, allowing you to maintain it as long as you feel it’s useful for your operations.
When you need to bridge the gap between a sale and payment
Waiting so long for invoice payments to make their way to your accounts payable team – or your own desk, depending on how you run your business – means a strain on finances. You’re owed money and you’ve already sent out and delivered the product that money will cover. Invoice factoring addresses this potential cash flow crunch by giving you credit quickly after you establish a relationship with your lender and turn over your invoices. Instead of having to budget months in advance to cover the payment delay, you can use the funding for any business purpose you see fit as soon as you receive it.
When you don’t want to put up mission-critical assets as collateral
Some financial products, especially large loans and lines of credit, can require businesses to put up vital assets as collateral. Whether you use key pieces of machinery or the land where your organization sits to satisfy that need, you have the possibility of losing something that your company can’t function without hanging over your head. Invoice factoring only leverages sales you’ve already made to fund your line of credit, which means far less worrying about what happens in a worst-case scenario. It’s also an effective way to limit how much credit you use without complex financial calculations.
When you don’t want to miss out on lucrative opportunities
Sometimes, your business needs money to take advantage of an opportunity that presents itself in the market. Consider the chance to inexpensively upgrade a key piece of machinery on your production line thanks to a special offer from the manufacturer. Putting a newer, more efficient piece of equipment to work can have tangible, measurable benefits in terms of output, cost of operation, reduced need for employee management of the system and more.
However, you can’t reap the rewards of lower costs and more product available for sale if your working capital – the money you use to operate on a daily basis – is tied up in unpaid invoices. Through invoice factoring, you can take advantage of such opportunities even if those bills haven’t yet been paid by your clients. In a similar vein, you’re able to address unforeseen emergencies when they occur.
Finding the right partner is a critical part of ensuring invoice factoring makes sense for your business. To learn more about Factoring and Accounts Receivables Financing, get in touch with TAB Bank today.
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